The nickel market faces a large supply glut this year as surging Indonesian production continues to outpace global demand, Reuters reported.
The International Nickel Research Group forecasts a surplus of 239,000 tonnes, the largest in at least a decade and up significantly from 105,000 tonnes last year. It is also an improvement from the group's last assessment in October, when it forecast a supply surplus of 171,000 tonnes this year. While nickel use is expected to grow by a healthy 6.1 per cent in 2023, demand expectations have moderated. But that is still not enough to absorb the wave of new production from Indonesia. However, the surge in supply has not come in the form of refined Category I metals traded on the London Metal Exchange and Shanghai Futures Exchange. That could complicate the pricing impact.
INSG estimates that global nickel use grew 6.3 per cent last year and forecasts it will almost match that rate this year. This is a resilient performance given that stainless steel remains the largest component of nickel use and production of the alloy fell 5.2 per cent last year, according to the World Stainless Association. Production at stainless steel smelters is falling everywhere. INSG expects only "modest growth" in the stainless steel industry this year. Demand for nickel from the electric vehicle (EV) battery industry has taken up the slack from the weak stainless steel sector.
The speed and scale of the global shift to electric vehicles means batteries are a central driver of nickel demand growth. According to Adamas Intelligence, a research firm, 17,137 tons of nickel were used on the roads of electric vehicle batteries worldwide in February. That was up 19 per cent month-on-month and 47 per cent from February last year.
However, the coming surplus will be determined not by demand but by production, especially in Indonesia, where nickel ore production grew by 48 percent to 1.58 million tonnes in 2022 and another 44 percent in the first two months of this year, according to INSG's most recent monthly bulletin. Due to Indonesia's total ban on ore exports in 2020, all minerals are now being converted into nickel products. Some new processing capacity is being developed to produce nickel pig iron for the stainless steel industry. However, much of the new production is aimed at the fast-growing battery industry, where operators are experimenting with new technologies to leap-over the processing hurdles of converting Indonesia's relatively low-grade laterite resources into a form that can be used in lithium-ion batteries.
